Custom, Excise & Service Tax Tribunal
Shri Mehulbhai Rasikbhai Raithatha vs Rajkot on 6 August, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
AHMEDABAD
REGIONAL BENCH, COURT NO. 3
EXCISE APPEAL NO. 11659 OF 2018
[Arising out of OIA-RAJ-EXCUS-000-APP-340-344-2017-18 dated 27/03/2018 passed
by Commissioner ( Appeals ) Commissioner of Central Excise, Customs and Service Tax-
RAJKOT]
SHRI MEHULBHAI RASIKBHAI RAITHATHA Appellant
Partner Of M/s. Murlidhar Sanitory.,
Ruda Transport Nagar, Behind Sat Hanuman Temple,
Rajkot,
Gujarat
Vs.
C.C.E. & S.T.-RAJKOT Respondent
Central Excise Bhavan, Race Course Ring Road, Income Tax Office, Rajkot, Gujarat-360001 WITH EXCISE APPEAL NO. 11661 OF 2018 (Dhirajlala K Panara) EXCISE APPEAL NO. 11662 OF 2018 (Shri Rahulbhai Kishorbhai Kotecha) EXCISE APPEAL NO. 11664 OF 2018 (Shri Sagar Karamshibhai Desai) EXCISE APPEAL NO. 11667 OF 2018 (Wintop Vitrified Pvt Ltd) Appearance:
Shri Amal Dave, Advocate for the Appellant Shri Ajay Kumar Samota, Superintendent (AR) for the Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER ( JUDICIAL ) HON'BLE MR. C. L. MAHAR, MEMBER ( TECHNICAL ) FINAL ORDER NO._11724-11728/2024 Date of Hearing : 08.07.2024 Date of Decision : 06.08.2024 RAMESH NAIR The brief facts of the case are that the appellant are engaged in the manufacture of vitrified tiles falling under chapter 69 of first schedule to the Central Excise Tariff Act, 1985 and is registered with Central Excise Department. On the basis of intelligence gathered by the central excise preventive officers that the appellant company is indulged in clandestine Page |2 E/11659, 11661-11662,11664,11667/2018-DB removal of finished goods, a team of preventive officers visited and searched the factory premises of the appellant company on 28.11.2014 and panchnama was drawn in the presence of director of the company Shri Dhirajlal Panara. During the course of search various incriminating records/ documents were found and recovered under the panchnama dated 28.11.2014 drawn at the factory premises of the appellant company.
Thereafter statements of directors Shri Dhirajlal Panara and Kamlesh Bavjibhai Panara were recorded under Section 14 of the Central Excise Act, 1944 wherein they have admitted that a file bearing Sr No. 13 of Annexure A to panchnama includes the details of goods cleared clandestinely wherever the "W" mark is mentioned. Thereafter during investigation three buyers namely Mehulbhai Rasikbhai Raithatha, Shri Rahulbhai Kishorbhai Kotecha and Shri Sagar Karamshibhai Desai were interrogated and their statements were recorded wherein they had admitted the purchase of goods without invoice as well as with invoice. During the cross-examination they have not confirmed the purchase of goods without invoice. On the basis of above investigation, a show cause notice dated 30.11.2015 was issued wherein the demand of excise duty amounting to Rs. 40,53,588/- was proposed along with demand of interest and imposition of penalty. Personal penalties was also proposed to be imposed under Rule 26 of Central Excise Rules, 2002 on the directors of the appellant company and three alleged buyers of the goods. The said show cause notice has been adjudicated vide Order-In-
Original No. 41/83/RKC/2016-17dated 22.02.2017 whereby the learned Additional Commissioner of Central Excise & Service Tax, Rajkot has confirmed all the proposals made in the show cause notice and amount of Rs. 40,55,000/- paid by the appellant company during investigation was appropriated. Being aggrieved by the Order-In-Original all the notices filed appeals before the Commissioner (Appeals) who vide Order-In-Appeal No. RAJ-EXCUS-000-APP-340 to 344- 2017-18 dated 23.03.2018 rejected the Page |3 E/11659, 11661-11662,11664,11667/2018-DB appeals except the reduction of penalty from 10 lacs to 5 Lacs on the appellant Shri Dhirajlal Panara. Therefore, the present appeals are filed.
2. Shri Amal Dave, Learned Counsel appearing on behalf of the appellant submits that the entire case of clandestine removal was made out on the basis of statements of directors of the appellant company and statements of only three buyers and also on the loose sheets recovered by the preventive officers. He submits that as regard the directors' statements no cross-examination has been conducted, therefore, there statements cannot be relied upon, and when this be so, then there is no basis of clandestine removal. He further submits that out of many alleged consignments, statements of only three persons were recorded who during cross-
examination denied the purchase of clandestinely removed goods and also denied that they have made any payment in cash. Therefore, there was no basis for clandestine removal.
2.1 He further submits that except some loose papers/sheets recovered from the factory of the appellant and the statements of the witnesses who were not cross-examined under Section 9D of the Central Excise Act, 1944 there is no other evidence such as transportation of goods, buyer of the goods, payment particulars, production of alleged goods, purchase of raw material for manufacture of such goods, therefore, there is no tangible evidence to establish the clandestine removal of the goods. He placed reliance on the following judgments:-
Continental Cement Company - 2014 (309) ELT 411 (All.)
Commissioner of C.Ex. & ST, Udaipur vs. Mittal Pigment Pvt Ltd -
2018 (360) ELT 29 (All.)
Parrot Power Ltd - 2024 (2) TMI 431 - CESTAT AHMEDABAD
Poojan Decor Pvt Ltd - 2023 (9) TMI 722 - CESTAT AHMEDABAD
Arya Fibres Pvt Ltd - 2014 (311) ELT 529 (Tri. Ahmd)
Page |4
E/11659, 11661-11662,11664,11667/2018-DB
T.G.L Poshak Corporation - 2002 (140) ELT 187 (Tri.Chennai)
Acme Ceramics - 2014 (304) ELT 542 (Tri.Ahmd)
3. Shri Ajay Kumar Samota, Learned Superintendent (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order.
4. We have carefully considered the submission made by both sides and perused the records. We find that in the present case the revenue has confirmed the case of clandestine removal against the appellant on the basis of some loose papers/sheets and statements of directors of the appellant company with reference to those loose papers and the statements given by three buyers of the alleged clandestinely removed goods. We find that on the basis of loose papers alone, the clandestine removal cannot be established.
4.1 As regard the statements of directors, the adjudicating authority was legally bound to conduct the cross-examination of those witnesses before admitting their statements as evidence. In this regard Section 9D provides as under:-
"9D. Relevancy of statements under certain circumstances.-- (1) A statement made and signed by a person before any Central Excise Officer of a gazetted rank during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains,--
(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or
(b) When the person who made the statement is examined as a witness in the case before the Court and the Court is of opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
Page |5 E/11659, 11661-11662,11664,11667/2018-DB (2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court."
4.2 From the above Section 9D, is mandatory to conduct the cross-
examination of the witnesses and if the witnesses agree with the statements given at the time of investigation then only the statements can be admitted as evidence , however, in respect of the statements of two directors Shri Dhirajlal Panara and Kamleshbhai Panara, the adjudicating authority has not cross-examined them with reference to their statements , therefore, the authority has violated the provisions of Section 9D of the Central Excise Act, 1944. In various judgments it has been held that without cross examination of the witnesses, their statements cannot be accepted as evidence. Some of the judgments are as under:-
Motabhai Iron & Steel Industries [2015 (316) ELT (Guj.)] "9. From the findings recorded by the Tribunal, it is apparent that the sole basis of the demand was the statement of Shri Arjandas who did not appear pursuant to the summons issued to him. The assessee was, therefore, deprived of an opportunity to cross-examine the witness in respect of the statements made against him. In these circumstances, no reliance can be placed on the statement of such witness who has not subjected himself to cross-examination by the affected party. Under the circumstances, the statement made by Shri Arjandas lost its efficacy and therefore, could not have been used against the assessee. Besides, the Tribunal has also found that M/s. Star Associates was regularly supplying goods to the assessee in the past and on no occasion, it was found that they had issued invoice without actually supplying the goods. It is in the light of the aforesaid facts that the Tribunal has deleted the disallowances of credit of Rs. 14,42,177/-. Under the circumstances, it cannot be said that there is any infirmity in the view taken by the Tribunal while deleting the disallowance of credit of Rs. 14,42,177/-."
Krishna Steel Industries 2010 (254) ELT 292 "6. I find that the statement of Shri Ganpat Shinde is most relevant in this case and the said Ganpat Shinde did not appear for cross-examination by the appellants, the statement of Shri Ganpat Shinde cannot be relied. Further, I find that the Assistant Commissioner had made enquiries in 1996 whereas Page |6 E/11659, 11661-11662,11664,11667/2018-DB transaction took place in 1994, the belated enquiry cannot be relied upon. The contention of the DR that the cross-examination was not necessary to adjudicate the case is totally irrelevant because this Tribunal has already passed the remand order with specific direction that the cross-examination of the witnesses is to be done and the said order has not been challenged by the Revenue, has become final. In this case, when the specific directions were given to decide the case after cross-examination of the witnesses was not done as the witnesses did not appear. I find that in the absence of cross- examination of witnesses as directed by this Tribunal, principle of natural justice is violated. Hence, the impugned order is set aside and the appeals are allowed."
Arya Fibers Pvt Ltd 2014 (311) ELT 529 (Tri. Ahm.) "29. Apart from the aforesaid issues, there are some legal issues which we would be considering while dealing with the factual aspects of the case. On the preliminary issue of violation of principles of natural justice, we find that the Adjudicating Authority has rejected the request for cross-examination on the reasoning that no justifiable and tangible reasons have been furnished by Nova while requesting for cross examination. In this regard, the ld. Senior Advocate has referred to the communications made by Nova requesting for cross examination of the witnesses.
30. As early as on 28-7-2006, Nova requested for cross examination of witnesses to examine the reliability and veracity of the evidences brought on record. By subsequent letter dated 9-9-2008, Nova had raised the issue of need and relevance of cross examination in cases like the present at the initial stage and cited several judgments in support thereof, starting with State of Kerala v. K.T Shaduli Yusuff Grocery Dealer (AIR 1977 SC 1627). The names of the witnesses, whose statements had been relied upon and whose cross examination was requested for, was also indicated therein. At a personal hearing given to Nova on 15-9-2008, Nova was called upon to make elaborate submissions regarding the request made in the earlier letter in the matter of cross examination of witnesses and about the witnesses who had been named in the earlier letter. Accordingly, by its letter dated 19-9- 2008, Nova classified the witnesses in six different categories for their cross- examination. The learned Senior Advocate appearing for Nova has taken us through these letters. We find, however, that by the order dated 10-10-2008 issued from the office of Adjudicating Authority, the request made in the aforesaid communication of Nova was rejected, holding that cross examination of the concerned persons did not appear to be justifiable and proper for reasons stated in the said letter. We have also been taken through the said order dated 10-10-2008. It was pointed out in the order that Nova had not furnished specific reasons for cross examination person-wise and Page |7 E/11659, 11661-11662,11664,11667/2018-DB that no tangible reasons or justification had been given for cross examination. The reasons for the conclusion of the Adjudicating Authority for the aforesaid order are also contained in the said letter. The main reason for rejection has been that the statements given by the persons concerned are only stated and confirmed on the basis of documentary facts, and some of them are employees of GSL or Nova and that, therefore, no new facts can be brought out during cross examination. It is also stated that statements of these persons have been corroborated by other evidences also which are in the form of documents or oral statements. In respect of some witnesses, cross examination has been denied on the ground that the witnesses did not have any connection with the case. The statements were based on factual details and documents maintained by the witnesses and, therefore, cross examination is not relevant and without any basis. The Adjudicating Authority also holds that, in the case of some of the witnesses, the statements are admissible in evidence under the provisions of the Act which has been corroborated by documentary evidence and, therefore, no cross examination can be acceded to. In respect of others, it is held that, they being machine operators their cross examination is not relevant. Cross examination has no relevance in the face of evidence available on record and the request was accordingly rejected. The statements of representatives of EOUs have been corroborated by other documentary evidence and are admissible as evidence under the law and cross examination of such persons cannot be permitted. To similar effect is the reason for rejection of cross examination in the case of transporters, since their statements have been recorded under Section 14 of the Act. The decisions cited in the submission made by Nova have been held to be not applicable since the facts and circumstances of those cases did not appear to be relevant to the facts of the present case. However, there is no discussion of any case referred to by Nova or to the facts and circumstances of those cases or even the dicta laid down in those decisions. On the contrary, the order relies upon the decision in the case of Collector v. D. Bhoormul [1983 (13) E.L.T. 1546], K. Balan v. GOI [1982 (10) E.L.T. 386 (Mad.)], UOI v. GTC Industries Ltd.
[2003 (153) E.L.T. 244 (S.C.)] and Shivom Ply-N-Wood Pvt.
Ltd. v CCE [2004 (177) E.L.T. 1150], and Liyakat Shah v. CCE [2000 (120) E.L.T. 556], the last 2 decisions being those of this Tribunal. The order also relies upon judicial decisions in the matter of confessions made in statement by persons who have been examined during the investigation, as being a ground for rejecting the cross examination. In Paras 56.5 to 57.27 of the impugned order, the Adjudicating Authority has reproduced the details contained in the earlier order dated 10-10-2008 by which cross examination of the witnesses had been denied.
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31. The ld. Senior Advocate submits that the law on the issue of cross examination of witnesses whose statements have been relied upon either in the show cause notice or in the Adjudication Order is quite well-settled. As could be seen from the facts stated hereinabove, the show cause notice proceeded on the basis of documents seized from different persons and from different premises, and statements thereon made by the persons concerned with the documents. It cannot be a ground for rejecting the cross examination to say that the documents clearly proved the case of the department and no purpose could be served by cross examining the witnesses whose statements in respect of the documents were relied upon. It is, further, submitted by the learned Senior Advocate in his written submission that the correctness of the statements made by witnesses vis-a- vis documents on record and correctness of the documents on record vis-a- vis statements made by the witnesses would be the subject matter for cross examination. We find merit in the said submission made by the learned Senior Advocate. In our opinion, there has been, in the present case, denial of natural justice to Nova by the rejection of the request of cross- examination of the persons whose statements have been relied upon. In the view we are taking, the following decisions relied upon by the ld. Senior Advocate, are in support :
In Bareilly Electricity Supply v. Workmen, (1971) 2 SCC 617, the Hon'ble Supreme Court had held that when a document is produced in a Court or Tribunal, "mere production of the document does not amount to proof of it or the truth of the entries therein. The writer must be produced or his affidavit in respect thereof be filed and an opportunity accorded to the opposite party who challenges this fact."
In Swadeshi Polytex Ltd. v. CCE, Meerut [2000 (122) E.L.T. 641 (S.C.)], it was held that if the Adjudicating Authority "intends to rely upon the statement of any such persons, the Adjudicating Authority should give an opportunity of cross examination to the appellant".
In Lakshman Exports Ltd. v. CCE [2002 (143) E.L.T. 21 (S.C.)], the Hon'ble Supreme Court had held that where an assessee had specifically asked to be allowed to cross examine the representatives of two concerns to establish that goods in question had been accounted for in their books of accounts and the appropriate amount of Central Excise duty had been paid, the logic of such request is clear from what is stated therein.
In Basudev Garg v. CC, New Delhi [2013 (294) E.L.T. 353], the Hon'ble Delhi High Court relied upon the earlier decision in J & K Cigarettes v. CCE [2011 (22) S.T.R. 225 (Del.)] = 2009 (242) E.L.T. 189 (Del.) and held that, insofar as general propositions are concerned, there can be no denying that when Page |9 E/11659, 11661-11662,11664,11667/2018-DB any statement is used against the assessee, an opportunity of cross examining the persons who made those statements ought to be given to the assessee. Reliance is placed on the decisions of the Hon'ble Supreme Court in Swadeshi Polytex (supra) and Lakshman Exports Ltd. (supra) and to the earlier decisions of the Hon'ble Delhi High Court in J &K Cigarettes case as clinching the issue in favour of the assessee. Reference is made in the said decision to the importance of Section 9D of the Act, the validity of which was also upheld in the said decision.
32. In the above connection, the ld. Senior Advocate has also submitted that, in the light of the decisions cited above, reliance in the cases referred to by the department and relied upon in the letter of 10-10-2008, (and recounted in the impugned order) is not appropriate. In D. Bhoormal's case (supra) what was being considered by the Hon'ble Supreme Court was the applicability of the provisions of the Evidence Act and the Code of Criminal Procedure to adjudication proceedings. In fact, this aspect has also specifically been adverted to by the Hon'ble Supreme Court in the Bareilly Electricity Supply case (supra), referred to by the learned Senior Advocate, particularly, the issue of applicability of Evidence Act to proceedings before the Courts and Tribunals. As held by the Hon'ble Supreme Court in that decision :
If a letter or other document is produced to establish some fact which is relevant to the enquiry the writer must be produced or his affidavit in respect thereof be filed and opportunity afforded to the opposite party who challenges this fact. This is both in accord with principles of natural justice as also according to the procedure under Order XIX Civil Procedure Code and the Evidence Act both of which incorporate these general principles.
33. In K. Balan's case (supra), the Hon'ble Madras High Court states that the necessity of cross examination depends upon the facts and circumstances of each case. The Adjudicating Authority has to give an opportunity to the party concerned as would assure him proper opportunity to defend himself. Opportunity of cross examination is given wherever it is relevant, justified and genuine and is not for protracting the proceedings. The decision in GTC Industries case (supra) is again to the effect that cross examination cannot be granted as a matter of routine and is to depend upon the facts of each case. This Tribunal's decisions cited in the latter of 10-10-2008 are also to similar effect - that cross examination is not always a mandatory procedure to be adopted in all cases. The request should not be dismissed arbitrarily or without exercising its discretion in the facts of each case. The Adjudicating Authority may refuse cross examination for justifiable reasons. According to the ld. Senior Advocate, these judgments relied upon in the letter of 10-10- 2008 are not, therefore, decisions which can justify the order passed in the P a g e | 10 E/11659, 11661-11662,11664,11667/2018-DB present case rejecting Nova's request for cross examination of the witnesses on whose statements reliance has been placed. We agree with the aforesaid submissions of the ld. Senior Advocate that the decisions cited by the adjudicating authority on this aspect are clearly distinguishable. They do not lay down the proposition that cross-examination is not a right, but only that it would depend on the facts of each case. During the hearing held before this Tribunal, and while replying to the submissions on this issue made before us by the ld. Senior Advocate, the learned Special Counsel for the department made reference to the recent decision of the Hon'ble Supreme Court in Telestar Travels Pvt. Ltd. v. Special Director Enforcement [2013 (289) E.L.T. 3 (S.C.)], as supporting the order rejecting cross-examination. In the said case, the Adjudicating Authority had relied upon the statements of two persons and communication received from Indian High Commission in London. These statements under reference were challenged as being inadmissible in evidence as the appellant's request for an opportunity to cross examine these witnesses had been unfairly declined thereby violating the principles of natural justice. On the other hand, it was argued by the department that right of cross examination was available to a party under the Evidence Act which has no application to adjudication proceedings under the FERA and Adjudicating Rules framed thereunder. We have perused the said judgment of the Hon'ble Supreme Court and also heard the submissions of the ld. Senior Advocate. The Hon'ble Supreme Court held that it is evident from Rule 3 of the Adjudicating Rules framed under Section 79 of the FERA that Rules of Procedure do not apply to adjudication proceedings. At the same time, as pointed out by the ld. Senior Advocate, the Hon'ble Supreme Court proceeded to say as under :
"That does not, however, mean that in a given situation, cross examination may not be permitted to test the veracity of a deposition sought to be issued against a party against whom action is proposed to be taken. It is only when a deposition goes through the fire of cross examination that a Court or Statutory Authority may be able to determine and assess its probative value. Using a deposition that is not so tested, may therefore amount to using evidence, which the party concerned has had no opportunity to question. Such refusal may in turn amount to violation of the rule of a fair hearing and opportunity implicit in any adjudicatory process, affecting the right of the citizen."
34. After referring to the decision of the Hon'ble Supreme Court in the case of Surjeet Singh Chhabra v. UOI [1997 (89) E.L.T. 646] and M/s. Kanungo & Co. v. CC [1983 (13) E.L.T. 1486], the Hon'ble Supreme Court (in Para 20), while dealing with the case at hand, held that reliance had been placed upon certain documents produced by the two persons as referred to above. The documents were permitted to be inspected by the appellants. Production of P a g e | 11 E/11659, 11661-11662,11664,11667/2018-DB document duly confronted to the appellant was in the nature of production in terms of Section 139 of the Evidence Act, where the witness producing the document is not subjected to cross examination. Such being the case, refusal of the Adjudicating Authority to permit cross examination of the witnesses producing the document, cannot even on the principles of Evidence Act, be found fault with. It was, therefore, held that no prejudice was caused to the appellant nor was demonstrated by the appellant before the Hon'ble Supreme Court or before the Courts below. We agree with the submissions of the ld. Senior Advocate that the said decision of the Hon'ble Supreme Court does not support the proposition that rejection of request for cross examination of witnesses whose statements have been relied upon, does not amount to violation of principles of natural justice. On the other hand, the observations extracted above demonstrate to the contrary. As far as the facts before the Hon'ble Supreme Court were concerned, production of the documents being in the nature of production of documents under Section 139 of the Evidence Act, their cross examination was prohibited by the said Section itself. In the present case, witnesses who have given the statements are not persons who were asked to produce documents under Section 139 of the Evidence Act. Their statements were recorded as witnesses. This decision, therefore, does not help the contention put forward by the learned Special Counsel. For the above reasons, we hold that there has been a denial of natural justice in the facts of the present case. The impugned order, as is evident, solely, relies on the statements of V.N. Parab, Mohanlal Gupta, Ashok Chiripal, and the transporters, and on the documents seized from GSL and Nova premises and explained by the witnesses whose statements were recorded. Nova had sought permission to cross examine 63 persons for reasons which had been broadly stated by them. One could not have expected Nova to outline the scope of the questions to be put to the witnesses, when their cross examination was sought. In the present case, as we would be dealing with later, de hors the documents and the statements, there was no material to establish the case made out against Nova, GSL or the EOUs. The decisions cited by the ld. Senior Advocate categorically reject the proposition that cross examination can be refused in cases like the present. We also agree with the ld. Senior Advocate that the decisions cited by the ld. Special Counsel for the Revenue do not lay down any law to the contrary.
35. We are, therefore, constrained to hold that the decision made by the Adjudicating Authority in his letter dated 10-10-2008 and in the impugned order, denying Nova's request for cross examination of witnesses, and subsequently recounted in the impugned order is clearly in violation of principles of natural justice in the matter of the need to permit cross examination of witnesses on whose statements reliance has been placed."
P a g e | 12 E/11659, 11661-11662,11664,11667/2018-DB 4.3 In view of the above judgments, statements of the two directors cannot be relied upon. Therefore, the adjudication order passed on the basis of their statements is not correct and legal.
4.4 As regard the statements of`` three buyers namely Mehulbhai Rasikbhai Raithatha, Shri Rahulbhai Kishorbhai Kotecha and Shri Sagar Karamshibhai Desai, we find that during investigation these buyers were confronted with certain questions wherein they have stated that they do not have any proof that the appellant company have sold the goods clandestinely to them or that they paid the appellant company in cash for such alleged clandestinely removed goods. When they were asked whether they paid for the goods clandestinely received form the appellant company, the said buyers stated that because of lapse of time they do not remember.
Considering such depositions made during the cross-examination, it is clear that the statements of the buyers are not reliable and in absence of any proof to the reliability of such statements, the statements cannot be sole basis to confirm the charge of clandestine removal. We further find that though the statements of the directors of the appellant company and the buyers cannot be basis of clandestine removal as discussed above, however, to substantiate the case of the department when the witnesses have given the statements, the investigating officers could have traced out the transporters who might have transported these goods, however, no such investigation was carried out. Moreover, there is no evidence of procurement of raw material and use thereof for manufacture of alleged clandestinely removed goods and also there is no evidence about manufacture of such goods. The investigating officers have not verified the capacity of production, power consumption, manpower etc. to reinforce the charge of alleged clandestine removal. Therefore, there is no cogent and tangible evidence on the basis of which clandestine removal can be established. Our View is supported by following judgments:-
P a g e | 13 E/11659, 11661-11662,11664,11667/2018-DB Continental Cement Company V/s. Union of India 2014 (309) ELT 411 (All.) Commissioner of C. Ex. & ST., Udaipur V/s. Mittal Pigment Pvt. Ltd. 2018(16) GSTL 41 (Raj.) Commr. of Cus., C.E. & S.T., Ghaziabad V/s. Auto Gollon Industries P. Ltd.
2018 (360) ELT 29 (All.)
Parot Power Pvt. Ltd. V/s. CCE & ST, Rajkot
2024 (2) TMI 431 - CESTAT AHMEDABAD
Poojan Decor Pvt Limited and Anr. V/s. Commissioner of Central Excise
& ST, Ahmedabad
2023 (9) TMI 722 - CESTAT AHMEDABAD
Arya Fibres Pvt. Ltd. V/s. CCE, Ahmedbad
2014 (311) ELT 529 (Tri.-Ahmd.)
T.G.L Poshak Corporation V/s. CCE, Hyderabad
2002 (140) ELT 187 (Tri.-Chennai)
ACME Ceramics V/s. CCE, Rajkot
2014 (304) ELT 542 (Tri. - Ahmd.)
In the case of Parrot Power Ltd (Supra), the Tribunal came to a conclusion
that allegation of clandestine production and removal are required to be arrived at on the basis of positive and tangible evidence including the evidences relating to procurement of raw materials, conversion of the same to final products, clearances of the same, identity of the buyers and receipt of unaccounted cash etc. It was further observed that the ratio of various decisions of the High Courts, entries in the private record do not ipso facto lead to the allegation of clandestine removal unless there is corroborative evidence to that fact from independent source.
Similarly in the case of Poojan Decor Pvt Ltd (Supra) this tribunal concluded that with merely pen drive data or excel sheets without evidence of extra receipt of cash or consideration and how such consideration was received by the assessee cannot be a ground for confirming the duty in as much as P a g e | 14 E/11659, 11661-11662,11664,11667/2018-DB such pen drive data or excel sheets are not substantial evidence to prove evasion of duty.
In the case of Arya Fibers Pvt Ltd (Supra) this tribunal held as under :-
40. After having very carefully considered the law laid down by this Tribunal in the matter of clandestine manufacture and clearance, and the submissions made before us, it is clear that the law is well-settled that, in cases of clandestine manufacture and clearances, certain fundamental criteria have to be established by Revenue which mainly are the following :
(i) There should be tangible evidence of clandestine manufacture and clearance and not merely inferences or unwarranted assumptions;
(ii) Evidence in support thereof should be of :
(a) raw materials, in excess of that contained as per the statutory records;
(b) instances of actual removal of unaccounted finished goods (not inferential or assumed) from the factory without payment of duty;
(c) discovery of such finished goods outside the factory;
(d) instances of sale of such goods to identified parties;
(e) receipt of sale proceeds, whether by cheque or by cash, of such goods by the manufacturers or persons authorized by him;
(f) use of electricity far in excess of what is necessary for manufacture of goods otherwise manufactured and validly cleared on payment of duty;
(g) statements of buyers with some details of illicit manufacture and clearance;
(h) proof of actual transportation of goods, cleared without payment of duty;
(i) links between the documents recovered during the search and activities being carried on in the factory of production; etc. Needless to say, a precise enumeration of all situations in which one could hold with activity that there have been clandestine manufacture and clearances, would not be possible. As held by this Tribunal and Superior Courts, it would depend on the facts of each case. What one could, however, say with some certainty is that inferences cannot be drawn about such clearances merely on the basis of note books or diaries privately maintained or on mere statements of some persons, may even be responsible officials of the manufacturer or even of its Directors/partners who are not even permitted to be cross-examined, as in the present case, without one or more of the evidences referred to above being present. In fact, this Bench has considered some of the case-law on the subject in Centurian Laboratories v. CCE, Vadodara [2013 (293) E.L.T. 689]. It would appear that the decision, though rendered on 3-5-2013, was reported in the issue of the E.L.T., dated 29-7-2013, when the present case was being argued before us, perhaps, not available to the parties. However, we have, in that decision, applied the law, as laid down in the earlier cases, some of which now have been placed before us. The crux of the decision is that reliance on private/internal records maintained for internal control cannot be the sole basis for demand. There should be corroborative evidence by way of statements of purchasers, distributors or dealers, record of unaccounted raw material purchased or consumed and not merely the recording of confessional statements. A co-
ordinate Bench of this Tribunal has, in another decision, reported in the E.L.T. issue of 5- 8-2013 (after hearings in the present appeals were concluded), once again reiterated the same principles, after considering the entire case-law on the subject [Hindustan Machines v. CCE [2013 (294) E.L.T. 43]. Members of Bench having hearing initially differed, the matter was referred to a third Member, who held that clandestine manufacture and clearances were not established by the Revenue. We are not going into it in detail, since the learned Counsels on either side may not have had the P a g e | 15 E/11659, 11661-11662,11664,11667/2018-DB opportunity of examining the decision in the light of the facts of the present case. Suffice it to say that the said decision has also tabulated the entire case-law, including most of the decisions cited before us now, considered them, and come to the above conclusion. In yet another decision of a co-ordinate Bench of the Tribunal [Pan Parag India v. CCE, 2013 (291) E.L.T. 81], it has been held that the theory of preponderance of probability would be applicable only when there are strong evidences heading only to one and only one conclusion of clandestine activities. The said theory, cannot be adopted in cases of weak evidences of a doubtful nature. Where to manufacture huge quantities of final products the assessee require all the raw materials, there should be some evidence of huge quantities of raw materials being purchased. The demand was set aside in that case by this Tribunal.
42. We may now proceed to deal with the four demands of duty in the present case :
I. The first duty demand of Rs. 56,52,945/- is mainly based on documents seized from the premises of GSL i.e. A-19, A-20, A-21, A-22 and A-23. Other than these documents, the evidence is V.N. Parab's statement and Mohan Bhai Gupta's statement. The seized documents as per the stand of the Revenue are note books maintained by Parab. The allegation with regard to the present demand is that Nova had clandestinely cleared POY to GSL. According to the Revenue the entries made in A-19, A-20, A-21, A- 22 and A-23 pertain to clandestine procurement of POY of 115/68 denier from Nova and clandestine production of DTY by GSL by processing the same. The ld. Senior Advocate has submitted that the entries made therein by V.N. Parab are totally vague, inasmuch as there is nothing therein to show that they pertains to clandestine procurement of POY and clandestine clearance of DTY. The learned Senior Advocate has also pointed out that there are discrepancies in the seized documents relied upon by the Revenue. He has further pointed out that A-21 does not even refer to the quantity of DTY produced by GSL. It is also difficult to establish that all the quantities of DTY were made out of 115/68 denier of POY. Annexure B-1 and B-2 have been prepared only on the basis of presumptions. He, further, submitted that the conclusion that A-19 and A-21 refer to the quantities being loaded in the crill is also without any evidence. There is no proof that GSL has used 100% of its capacity for production of DTY. Except for these entries, there is no substantial material to show that such a huge quantity of POY has been cleared to GSL without payment of duty and that the entire quantity has been used of production of DTY. There is no proof of purchase of such huge quantity of POY from Nova by GSL. No evidence has been led by the Revenue to show that GSL had actually produced DTY out of POY supplied by Nova. There is no evidence of transportation of POY from Nova to GSL factory. Undoubtedly, huge quantities of raw material would be required for manufacturing such a huge quantity of POY. No evidence has been brought either in the SCN or in the Adjudication Order to show that raw materials have been purchased by Nova for manufacture of such a huge quantity of POY. There is no proof of any extra payment being made to Nova by GSL. In the absence of these evidences, the ld. Senior Advocate submitted that it would be impossible to conclude that Nova had cleared POY of such huge quantities to GSL, in the light of the decisions of this Tribunal, which he has earlier placed before us. He also submitted that V.N. Parab's statement, could not be given much credence for the reason that these were note books maintained by him in the office of GSL. It would be difficult for Nova to explain why such entries were made by V.N. Parab who was neither their employee nor acting under their instructions. When the Directors of Nova were shown the records of GSL, they have stated that they cannot comment on the records of GSL. It was also the submission made by the ld. Senior Advocate that no presumption of truth can be drawn against Nova from the documents A-19, A-20, A-22 or A-23 or from the statement of V.N. Parab. Under Section 36A of the Act, where any documents have been seized from the custody or control of any person and such document is tendered in evidence against him or against him and any other person who is jointly tried with him, unless the contrary is proved against such person, the Court shall presume the truth of the contents of such document. Therefore, the truth of contents of such documents can be presumed only where the person from whose custody or control the document has been seized is being proceeded at all, whether solely or jointly tried with some other person. In the present case, V.N. Parab has not been proceeded against solely or jointly with some other person. In the present case, admittedly the documents were recovered from the premises of GSL. The said documents were produced by Parab who is no way connected with Nova. No presumption could therefore be drawn against Nova. There has, therefore, to be independent corroboration of the facts alleged in the show cause notice, apart from documents. The learned Senior Advocate has relied upon the decision of the Hon'ble Supreme Court in the case of State of Kerala v. M.M. Mathew, (1978) 4 SCC 65. He drew attention to the relevant para of the said judgment :
P a g e | 16 E/11659, 11661-11662,11664,11667/2018-DB "It is now well settled that strong suspicion, strange coincidences and grave doubts cannot take place of legal proof. To establish the charges against the respondents, it was, in our judgment, essential for the prosecution to establish that the secret books of account related to the business transactions carried on by the respondents and none else. This it could have established in a variety of ways viz. (1) by adducing satisfactory proof to the effect that the place from which the secret books of accounts were seized formed part of the place of business of the respondents or was in their exclusive possession and control, (2) that the secret books of account were maintained by or under the orders of the respondents, (3) that the said books of account were in the handwriting of either of the respondents or their accountant, or clerk or some other person employed by them".
Admittedly none of the documents marked as A-19 to A-23 was recovered from the premises of Nova. It is not the case of the Revenue that these note books were maintained by V.N. Parab under the instructions of Nova. Further, these note books were not in the handwriting of any of the persons of Nova or its accountant or clerk or any employees of Nova. Applying the ratio of the decision of the Hon'ble Supreme Court in M.M. Mathew (supra), the documents upon which the show cause notice has placed strong reliance has no probative value. The ld. Senior Advocate further submitted that merely because the document has been produced during investigation, it does not establish its probative value. The Hon'ble Supreme Court in the case of Bareilly Electricity Supply v. Workmen, 1971 (2) SCC 617 has held that mere production of document does not amount to proof. Further, in the case of Life Insurance Corporation of India & Anr v. Rampal Singh Besin, (2010) 4 SCC 491, the Hon'ble Supreme Court has held that "mere admission of a document in evidence does not amount to its proof". Para 25 of the said decision reads thus :
"We are of the firm opinion that mere admission of a document in evidence does not amount to its proof. In other words, mere marking of exhibit on a documents does not dispense with its proof, which is required to be done in accordance with law".
The ld. Senior advocate has, therefore, submitted that the confirmation of the demand of Rs. 56,52,945/- is arbitrary, illegal and unjustified and deserves to be set aside.
In reply to the submission of the ld. Senior advocate, the ld. Special Counsel has filed written submission on 30-7-2013, which he also explained orally. After summarizing the facts as stated by the Adjudicating authority, by way of what has been stated in the show cause notice, the ld. Special Counsel has submitted that, except for saying that investigations did not touch on purchase of raw materials and payments therefore, Nova did not come forward with any satisfactory explanation in respect of the facts stated in the show cause notice, and the statements referred to therein. In this view of the matter, he submits that the present demand has been confirmed by the Adjudicating Authority for valid reasons and cannot be faulted.
We have considered the submissions of both parties. We find that no evidence has been produced by the Revenue to show that Nova has effected sale of such huge quantities of (2,75,197.31 kgs) POY to GSL. There is no tangible evidence of GSL having actually produced all the DTY or Twisted Yarn from out of non-duty paid POY supplied by Nova. No transporters' documents have been seized or produced by the Department to show transport and sale of such huge quantities of POY from Nova to GSL or, even for that matter, from GSL to the buyers of DTY produced by GSL. No evidence has been forthcoming of purchase of raw materials by Nova for production of POY in such huge quantities, or of payments effected by GSL to Nova for the excess quantities of POY, clandestinely manufactured and cleared by Nova and sold to GSL, or even of payments made by the buyers of DTY from GSL made out of quantities alleged to have been purchased by GSL from Nova. The only basis of the demand is the figures contained in A/19 and A/21, seized from GSL premises, of which V.N. Parab is the author. Even if the figures in the seized documents tally (this is disputed by Nova, since V.N. Parab has not, when he was being examined during the investigation, stated that they tally), that by itself cannot prove clandestine manufacture and clearance, the tests for which have been adequately explained by this Tribunal in the decisions cited earlier, amongst several others. The documents in question, have not been resumed from Nova's premises, nor is the author of the documents (V.N. Parab), a person in Nova's employment or acting under Nova's instructions. Reliance by the ld. Senior Advocate on the decisions of the Hon'ble Supreme Court in State of Kerala v. M.M. Mathew (supra) and Bareilly Electricity Supply v. Workmen (supra) are appropriate and supports the P a g e | 17 E/11659, 11661-11662,11664,11667/2018-DB submission made on behalf of Nova. In cases like the present, where the demand is based on clandestine production, clearance and sale of excisable goods, mere entries in note books or diaries cannot establish the same. Proof of actual production, whether by direct evidence or corroborative evidence is a 'must', and the probative value of such evidence has to be established, especially when such a finding would lead to penal consequences.
In our view, therefore, the present demand of Rs. 56,52,945/-, which has been confirmed against Nova by the impugned order, is not based on evidence which, as this Tribunal has repeatedly emphasized in cases of clandestine manufacture and clearance, would justify a finding against the appellant (Nova). Inferential or conjectural conclusions cannot be arrived at in such cases as has been done in the present demand, merely based on what GSL did with the POY allegedly sold to them by Nova. Unless there is conclusive evidence that Nova did actually manufacture POY and clandestinely clear them without payment of duty, liability cannot be placed on Nova on the basis of conjectures and surmises, as the Hon'ble Supreme Court emphatically declared in the Oudh Sugar Mills case (supra). We are of the view that there is no tangible evidence produced by the department to establish that Nova has clandestinely manufactured and cleared POY on which the present demand has been made. We, therefore, set aside the demand of Rs. 56,52,945/- as being illegal and unjustified.
II. The second demand of Rs. 3,93,20,685/- is based on Ashok Chiripal's diary, his statement and statements made by some of the employees of Nova. According to the show cause notice, the diaries refer to production, captive consumption and clearance of Polyester Chips by Nova. Figures showed wide variations with statutory records. The chips are further used in the manufacture of POY by Nova. As regards this demand, the allegation is that Nova had suppressed the actual production, captive consumption and clearance of Polyester Chips and has not recorded for the entire production of Polyester Chips in the statutory records. Excess Polyester Chips have been captively consumed by Nova for further manufacture of POY which was further clandestinely cleared by them. According to the Revenue, the diaries were maintained by Ashok Chiripal in his own handwriting showing production and captive consumption of Polyester Chips. Excess production of Polyester Chips was recorded in these diaries. According to Nova, these diaries by themselves do not speak of any clandestine procurement of raw- materials, manufacture of Polyester Chips and excess production of Polyester Yarn. Inferences have been drawn from the entries made in these diaries without corroborating the same with any concrete evidence. Merely because Ashok Chiripal has stated that the entries mentioned in the diaries are true and pertains to the excess production of Polyester Yarn, would not be enough to fasten the liability upon Nova. There is no evidence of procurement of raw material i.e. Mono Ethylene Glycol (MEG) and Purified Terephtalic Acid (PTA) for the production of such a huge quantity of Polyester Chips in a period of less than 6 months. Not a single person has been identified by the Revenue who has supplied such a huge quantity of raw materials for the manufacture of Polyester Chips. That apart, no evidence have been led by the Revenue regarding production of such a huge quantity of POY. Undoubtedly, these POY could not have been transported without proper mode of transport. The Revenue has failed to bring on record any evidence regarding transportation of POY alleged to have been manufactured clandestinely. No buyer has been identified who has clandestinely procured the POY from Nova. Merely because Ashok Chiripal has explained the entries made in the diary, it cannot be accepted as a basis for demanding duty against Nova. The adjudicating authority has sought to rely upon the statement of Ashok Chiripal without subjecting him to cross examination. The ld. Senior Advocate appearing for Nova reiterated these submissions. He emphasized that, under Section 36A of the Act, mere production of document would not have no probative value as has been held by the Hon'ble Supreme Court in Bareilly Electricity Supply (supra). It was pointed out by the learned Senior Advocate that the decision of Hon'ble Supreme Court in Duncan Agro Ltd. has been wrongly applied to the facts of the present case. It has further been pointed out in the written submissions filed before us by the ld. Senior Advocate that the decision only states that a statement under Section 108 of the Customs Act, 1962 corresponding to Section 14 of the Central Excise Act, 1944 is admissible as evidence. "Admissibility of a statement in evidence does not make it a confession". In this connection, he has referred to the decision of the Hon'ble Supreme Court in Veera Ibrahim v. State of Maharashtra, (1976) 1 SCC 302 = 1983 (13) E.L.T. 1590 (S.C.), that Section 24 of the Evidence Act requires certain facts to be established. The statement in question should be a "confession". Firstly, such confession should have been made by the accused. Other ingredients of S. 24 are not relevant in the context of the present case. It is important to note that the statement in order to amount to "confession" must admit the offence or at any rate substantially all the facts which constitute the offence. Admission of P a g e | 18 E/11659, 11661-11662,11664,11667/2018-DB incriminating facts howsoever great, is not by itself a "confession". In the present case, the so-called confession has not been made by a person charged with any offence. Ashok Chiripal has not been charged with any offence which is in violation of the law in the present case. No show cause notice has been issued to him. The question of his statement being regarded as "confession" does not, therefore, arise, because confession, by its very nature, has to be made by a person charged with breach of law. In fact, at the time of hearing, the ld. Special Counsel did not dispute the submissions made by the ld. Senior Advocate of Nova that there was no "confession" by Ashok Chiripal. It was only his statement that has been relied upon.
According to the submission made by the ld. Senior Advocate, who, once again relied heavily on the tests laid down by the Tribunal regarding the nature of evidence required to affirm a finding of clandestine manufacture and clearance, a very important consideration which failed to be appreciated by the Adjudicating Authority was that, in respect of the instant demand, there was no evidence whatsoever of the procurement of the required raw materials (MEG & PTA) for production of the alleged 1910587.5 kgs of Polyester Chips in less than 6 months. Nor was there any evidence of actual production of such quantities by Nova. There is also no evidence of transportation of POY, if at all manufactured, to any buyer. No payments made by Nova to suppliers of raw materials, nor by buyers of POY to Nova have been specifically alleged or any evidence adduced of the same. The ld. Senior Advocate for Nova, in his written submissions, again referred to the decisions of the Hon'ble Supreme Court in Bareilly Electricity Supply case (supra), Ram Bihari Yadav (supra), LIC of India v. Ram Pal Singh Besin, (2010) 4 SCC 491 in support of the proposition that mere admission of a document in evidence does not amount to its proof, which has to be done in accordance with law. He also relies upon the fact that the entries in the diary showed that approximately 4.97 lakhs kgs were manufactured in March, 2002, 16.46 lakhs kgs in April, 2002 and 28.54 lakhs kgs in May, 2002. Such variation could not have been real, on which no explanation was sought from Ashok Chiripal when his statement came to be recorded. Nova's request for his cross examination was rejected. The Adjudicating Authority, as submitted by the ld. Senior Advocate, rejected the aforesaid submission regarding the variation by merely stating that there was no such variation in the Polyester Chips manufactured from month to month in 2002 since Annexures C1 and C2 to the show cause notice do not support it, and the Diaries and the statement of Ashok Chiripal have to be taken as correct and weightage given. The ld. Senior Advocate also submitted that MEG and PTA (raw materials) were being purchased by them from Reliance Industries Ltd., a major supplier of the same, in respect of which proper records are maintained by them as well as Nova, and it was presumptuous for the Department even to contend that they were purchased from Reliance Industries Ltd. without any payment being recorded or in cash. Apparently, the investigating authorities never verified this from Reliance Industries Ltd. and the impugned order records a mere finding that the statement that Nova purchases the raw materials from Reliance Industries Ltd. is "factually incorrect" without giving any reason for arriving at the said finding. It was, therefore, the submission of the ld. Senior Advocate for Nova that the diaries and statements relied upon by the Revenue do not prove the case of clandestine manufacture and clearance of POY by Nova, which has to be established in accordance with law laid down by the Tribunal in the long line of decisions, referred to by him while dealing with the earlier demand.
In reply to the submissions made on behalf of Nova, the ld. Senior Special Counsel for the Revenue filed written submissions on 30-7-2013 and explained the same. The diaries had been maintained by Ashok Chiripal, showing production and consumption of polyester chips in Nova's factory from March, 2002 to August, 2002. The statement of Ashok Chiripal was not retracted by him, which stated that the figures were showing actual production of polyester chips by Nova and captive consumption thereof for manufacture of POY. A quantity of 17,69,298 kgs of polyester chips shown to have been transported were not entered in the Excise records. The statements of Vikram Oza and Nitin Patel, employees of Nova were to the effect that Nova was receiving PTA (one of the raw materials) which was not accounted for in the records. The ld. Special Counsel also showed us certain figures in the diaries about production on 31-3-2002 and submitted that the records and the statements cannot be belittled.
We have considered the rival submissions. We are constrained to reiterate that it is one thing to make out the content of entries made in a document. It is totally a different thing to assess the probative value of the contents of the document. As repeated by this Tribunal, clandestine manufacture and clearance cannot be readily inferred from documents and statements. They have to be established on evidence, relatable to or linked with actual manufacturing operations. As far as the present demand is concerned, P a g e | 19 E/11659, 11661-11662,11664,11667/2018-DB there is no such evidence forthcoming in the record before us. Mere reliance on note books/diaries or statements cannot justify a finding of clandestine manufacture and/or clearance. Investigation into the sources of supply of raw material (MEG & PTA in the present case), especially when Nova had stated that they get their raw materials from Reliance Industries Ltd., one of the biggest producers thereof, would have revealed the actual facts. Apparently, no efforts seem to have been made in this behalf by the investigating authorities. Of equal importance would have been investigations into the transportation of the raw materials (in huge quantities, as alleged) to Nova and of POY allegedly manufactured from the factory of Nova to its buyers, and payments for such raw materials and for the clandestinely cleared POY. In the absence of all such evidence, a finding that excisable goods have been clandestinely manufactured and cleared by Nova cannot justifiably be arrived at. The probative value of the entries needs to be established by independent corroboration, which is lacking in the present case. The long line of decisions referred to and relied upon by the ld. Senior advocate for Nova have laid down the parameters for a charge of clandestine manufacture and clearance to be established, which have not been satisfied in the present case. We need to say nothing more. The present demand of Rs. 3,93,20,685/- is, therefore, unjustified and deserves to be set aside. Accordingly, we do so.
III. The third demand of duty of Rs. 2,82,64,613/- is on Degraded Chips/Polymer Waste arising in the factory of Nova during the course of manufacture of POY. The allegations are essentially based on a report of the Regional Transport Officer (RTO) showing that the vehicles shown as transporting degraded chips are incapable of carrying the goods, that full addresses of buyers had not been given, and no payments have been made to transporters. It was alleged that no clearances of degraded Polyester Chips/Polymer Waste took place, and they were consumed captively to manufacture POY which was cleared clandestinely. Reliance has been placed upon the statement of Pankaj Patel, Accounts Assistant and H.K. Jha. Again Ashok Chiripal's statement has been relied upon to conclude that Nova has never cleared degraded chips. According to the show cause notice, in order to maintain input-output ratio, bogus invoices were issued by Nova showing clearances of degraded chips and waste. What was cleared was POY in the guise of such degraded chips/waste. The ld. Senior Advocate for Nova submitted that the allegation being that 1396923 kgs of POY were manufactured and cleared clandestinely, it is inconceivable that there were no degraded chips or polymer waste arising during the manufacture of such a huge quantity of POY. The allegation is, itself, therefore, baseless. H.K. Jha had stated that degraded chips could be recycled. He had nowhere stated that degraded chips were actually recycled and issued for making POY. The stand of the Revenue that no degraded chips were ever manufactured and cleared, is without any basis as it is admitted in the show cause notice itself that 10 to 25% of the chips manufactured were degraded and cleared as degraded chips as waste. The ld. Senior Advocate also submits that no evidence has been led by the Revenue as to how such huge quantity of POY have been manufactured and transported by Nova to its customers. For such huge production of POY there is no evidence regarding excess consumption of electricity etc. No material has been brought on record to show that Nova had actually produced 13,96,923 kgs of POY and cleared them without payment of duty. It was submitted in the written submission filed by the ld. Senior Advocate for Nova that 13,96,923 kgs comprised 5,92,920 kgs of degraded chips and 8,03,931 kgs of polymer waste which arose during the manufacture of 103,15,642 kgs of Polyester Chips, and the said 13,96,923 kgs were cleared on payment of duty. No customer to whom Nova had allegedly sold POY clandestinely has been identified. There is no evidence regarding payment received for sale of such huge quantity of POY. In fact, there is evidence to the contrary showing that degraded chips were cleared by Nova which is reflected in the returns filed before the jurisdictional Authorities. Annexure D-1 and D-2 to the reply filed by Nova to the show cause notice referred to 130 Central Excise invoices of goods cleared on payment of duty and shown in monthly returns filed with the Central Excise Officers in-charge of Nova's factory. No objection had been raised by them that they were POY of good quality. Ashok Chiripal's statement, therefore, would not substantiate the case of the Revenue. The primary evidence which is required to establish clandestine removal is absent in the present case as explained in the decision of the Tribunal referred to earlier, is absent in the present case.
It is further stated in the written submission filed by the ld. Senior Advocate that the RTO's Report relied upon by the Department dealt only with 9 consignments out of 130 (79090 gms out of 1396923 kgs) in which, as the Director of Nova pointed out in his statement, there could have been a human error, since the Vehicle Nos. were written down as given by its Driver. It was also stated by Nova that details of identity of the customers and addresses were all given on the invoices. In fact, one of the customers had even been summoned by the investigating officers, who stated that he did not know P a g e | 20 E/11659, 11661-11662,11664,11667/2018-DB Nova. Further, in the 9 consignments referred to by the RTO, addresses were indicated in the invoices. Though the vehicle numbers were wrong, the Department made no efforts to verify from the addressee customers as to whether they received the goods or not. There is no evidence of consumption of degraded chips or polymer waste for actual production of 1396923 kgs of POY by Nova, nor of their removal from Nova or their buyers thereof. No monetary transactions dealing with such sale of POY by Nova have been found by the investigating agency or placed on record.
The ld. Special Counsel for the Revenue has relied upon the statement of Ashok Chirpal made on 22-7-2004, that he had never received in the State any degraded chips. All chips mentioned in his diary were good quality chips used for manufacture of yarn. However, this is controverted by the ld. Senior Advocate for Nova who pointed out that in his first statement made on 14-9-2002, Ashok Chiripal had admitted the production of degraded chips during manufacture and their sale, and also produced two invoices evidencing their sale. Strangely enough, the first statement has been ignored by the Adjudicating Authority, though the statement figures in the list of Relied upon Documents supplied to Nova.
We have considered the submissions made by both parties. The Adjudicating Authority has, in the impugned order, referred to RTO's report regarding 9 vehicles that they were incapable of carrying the goods, and that the logical inference is that goods shown to have been transported were not in fact transported from the factory premises of Nova. This is totally incompatible with the allegation in the show cause notice that Nova was clearing goods as degraded chips/polymer waste while they were POY of good quality. The returns filed by Nova with the Central Excise Authorities showed removal of degraded chips/polymer waste. The inference drawn in the impugned order does not seem, therefore, to be supported by the facts of the case. In any event, like in the earlier two demands, which have been dealt with us already, this demand also, being one, where clandestine manufacture and clearance is alleged, the facts on record do not establish the same. There is no tangible evidence that Nova actually produced 13,96,923 kgs of POY as alleged, or to whom such goods were sold how they were transported, how payments for the POY came to be made etc. This cannot be a matter of "inference" from the fact that 9 out of 130 consignments were stated to have been transported by vehicles, which according to the RTO Report, were not capable of carrying the goods. As reliance has been placed in the impugned order to the decision of the Tribunal in the Viraj Alloys Ltd. case [2004 (177) E.L.T. 892], we have gone through the same. We agree with the submission of the ld. Senior Advocate for Nova that the said decision is distinguishable for the reason that the said decision was in a case where R. 57G of the erstwhile Central Excise Rules had prescribed the particulars which an Invoice under Rule 52A should contain. Correct registration No. of the vehicle was a mandatory prescription. In the present case, no such mandatory provision has been pointed out to us. Further, the decision cited by Revenue confirmed the duty demand in respect of the invoices where the mandatory provision was found to been violated inasmuch as 99 vehicles were found to have been incapable of carrying the goods. In the present case, there were 9 vehicles out of 130 but the entire duty in respect of all the 130 vehicles has been confirmed. In any event, this being a case of clandestine clearance, evidence thereof cannot be the mere incapacity of 9 vehicles (inferred from only the Vehicle No. indicated) out of 130 to carry the goods. Corroborative evidence of actual manufacture of POY and clearance to identified person or places and of payments made are some of the required conditions, which are not there in the case of the present demand, as in the earlier two demands.
We, therefore, have no hesitation in holding that this demand has been made without any concrete or tangible evidence, and for the sole reason that no goods were sent out because the vehicle No. indicated was wrong. No attempt was made to find out from the parties to whom 130 consignments had been sent as to whether or not they received the goods. We accordingly, set aside the duty demand of Rs. 2,82,64,613/- confirmed against Nova, as being not substantiated.
IV. The demand of duty of Rs. 10,07,06,323/- (of which a sum of Rs. 9,77,62,573/- has been confirmed by the Adjudicating Authority, is based on the allegation that POY was illicitly cleared by Nova to EOUs against CT-3 Certificates with intent to evade payment of duty. The allegation is that enquiries from the transporters revealed that the goods were never transported to the EOUs but were unloaded in or around Surat and sold in the domestic market, allegedly in collusion with the EOUs. Delivery Challans, according to the show cause notice, showed transportation of the goods from Nova to the EOUs. The signatures of the authorized signatory of the EOU receiving the same were not P a g e | 21 E/11659, 11661-11662,11664,11667/2018-DB present in the Delivery Challans. On the reverse side of the same Delivery Challans, names of dealers based at Surat were mentioned. Clandestine clearances to local parties at Surat were thus camouflaged. Enquiries made with the dealers whose premises were searched revealed no incriminating documents since, according to the department, they were aware of the search of Nova premises 20 days before and were expecting searches of their premises as well. It is also the case of the department that enquiries regarding types of vehicles used for transportation of yarn to EOUs showed that large quantities had been cleared by Nova in incapable vehicles. Transportation had been arranged by the factory. As per the allegation in the show cause notice, transactions to EOUs were routed through Nova's dealers. Dealers submitted CT-3 certificates of the concerned EOUs and placed order on Nova. It is sent to the Excise Section. All transactions were made only through dealers. Nova does not directly deal with any of the EOUs. Re-warehousing certificate in respect of goods consigned to EOUs as well as payment in respect of the goods from the EOUs were also submitted by the dealers. Enquiries with the Central Excise authorities, according to the show cause notice, made it clear that they never verified duty-free input sent by Nova to EOUs under their charge because of C.B.E. & C. Circular 88/98-Cus., dated 2-12-1998. Certificates were issued on the basis of documents without any physical verification. In respect of EOUs located in the State of Gujarat, transportation of goods were, in some cases, made in incapable vehicles. Demands were, therefore, made jointly and severally from Nova and different EOUs. In the case of some EOUs, the show cause notice alleged that they did not have the machinery to manufacture the goods from POY sold by Nova to them and export them. The Adjudicating Authority confirmed the demand holding, inter alia, that the show cause notice, as alleged by Nova, was not defective in demanding duty jointly and severally from Nova and the EOUs. He relied upon the definition of the term "manufacture" under Section 2(f) of the Act and usage of the word "person" in Section 11A thereof. In all the cases of EOUs, the demands have been confirmed on Nova, on the ground that no POY was transported/received by the EOUs. Though the show cause notice demanded duty jointly or severally from Nova and the EOUs, demands have been confirmed only as against Nova. There is no demand of duty against the EOUs.
The demands have been confirmed merely for the following reasons :-
(i) Some of the vehicles shown to have transported the goods were incapable of transporting the goods;
(ii) The goods to the EOUs outside Gujarat (Malegaon/Dhulia) were not, in fact, transported from Nova to the respective EOUs but were unloaded in or around Surat, and sold in domestic market.
(iii) Statutory documents like AR-3A, CT-3 and Re-warehousing certificates are not relevant because the officers did not have to physically verify receipt of goods by the EOUs, as per Board Circular 88/98-Cus., dated 2-12-1998;
(iv) Only Delivery Challans could be proof of the delivery which, in the present case, were not all signed by the recipient EOUs. The Delivery Challans were more important than the statutory documents.
(v) There were names of dealers of Surat on the Delivery Challan (on the reverse) which proved that the goods were delivered in or around Surat.
(vi) Some of the EOUs did not have machinery to process POY and there was no evidence of the EOUs having given the POY for job work;
(vii) Some of the transporters had licence only to ply within the State of Gujarat.
(viii) LRs and LR books were kept in the office of Nova and were prepared by two of their employees.
The above is a gist of the allegations in the show cause notice which have been culled out therefrom, in the written submissions submitted by the learned Senior Advocate for Nova. We notice that the learned Special Counsel appearing for the department has also filed written submission before us on 30-7-2013, wherein he has also summarized the reasons for which duty amounts have been confirmed on Nova vis- à-vis each of the EOUs. This has been done in a tabulated form which helps us to examine the case on all its aspects.
P a g e | 22 E/11659, 11661-11662,11664,11667/2018-DB The learned Senior Advocate for Nova has raised a preliminary objection which Nova had raised before the Adjudicating Authority, but had been rejected, on the issue of joint and several liability for payment of duty on independent persons. The learned Senior Advocate submitted that the manufactured product in the present case is POY which, admittedly, is manufactured by Nova and not by the EOUs. There is no manufacturing activity attributable to the EOUs insofar the manufacture of POY is concerned. Though the Adjudicating Authority has relied upon the definition of the term "manufacture" in Section 2(f) of the Act, the learned Senior Advocate submits that the Adjudicating Authority has misinterpreted the inclusive part in the definition of the term "manufacturer" appearing in the said Section 2(f) to mean that there could be more than one manufacturer in some cases. The learned Senior Advocate submits that the Adjudicating Authority has erred in coming to the above conclusion. Nova had relied on the decisions of this Tribunal in Famous Textiles v. CCE [2005 (190) E.L.T. 361] and in the case of Shree Arvindh Steels [2007 (216) ELT 332]. Though they directly dealt with the issue, the Adjudicating Authority held that the ratio of the decisions is not "strictly" binding, since Famous Textiles decision was in a stay application under Section 35F of the Act and not a final order under Section 35 thereof. The decision in Arvindh Steels Ltd. is the subject matter of appeal filed by the Department which, according to the Adjudicating Authority, is pending before the Hon'ble High Court of Madras and is, therefore, not final in nature. The learned Senior Advocate submits that, while it is true that the decision in Famous Textiles case was passed in a stay application, the decision in Arvindh Steel Ltd. is a final order passed by this Tribunal and the filing of an appeal does not affect the finality of the said decision. It is well recognized that the filing of an appeal does not automatically render the decision inapplicable. He relies upon the decision of the Hon'ble Supreme Court in Madan Kumar Singh v. District Magistrate, (2009) 9 SCC 79 where it is held that mere filing of petition, appeal or suit would, by itself, not operate as stay until specific prayer in this regard is made and orders thereon are passed. It is, therefore, well established that unless the decision gets wiped out as a result of final decision of a higher forum, it would continue to be binding on lower/subordinate Courts. In this view of the matter the ld. Senior Advocate submitted that the show cause notice itself is per se void and it is not open to the Adjudicating Authority to dissect the show cause notice and come to a finding that only one is liable.
We have gone through the written submissions filed by the learned Special Counsel for the Revenue on this aspect and he has made only a reference that, in respect to the preliminary objection, the respondent has held that given the usage of the expression "person" in Section 11A, the differential duty can be demanded jointly and severally from Nova and EOUs.
Though the issue raised by Nova as regards the question of whether the show cause notices can be issued demanding duty against two or more independent persons jointly and severally has been raised as a preliminary objection, and is an issue which deserves examination, we do not think it necessary to venture on such exercise in the present case, in view of the decision which we are taking in the matter of the instant demand on merits.
On the merits, it was submitted by the ld. Senior Advocate orally as well as in the written submission filed by him it is an admitted fact stated in the impugned order that re- warehousing certificates for the entire quantity of yarn were received by the Central Excise Office in charge of Nova directly from Central Excise and Customs officers in charge of all the EOU customers. These have been shown as received in the in-bond register of the EOUs and payments have also been made by the EOUs to Nova by cheques/drafts. According to the Adjudicating Authority, physical verification of receipt of POY by the EOU was not necessary because of the Board Circular. The Delivery Challans are the conclusive document. The DC did not contain the signature of the authorized person or of the recipient. Therefore, there was no delivery at Malegaon/Dhulia. At the same time Delivery Challan is relied upon by the learned Adjudicating Authority to say the goods were delivered at or around Surat since the reverse side contained the names (not signatures) of Nova's brokers at Surat. From this it is presumed that the goods were sold in local market in or around Surat. There is no reference anywhere as to when they were sold in Surat, by which broker to which buyer. Significantly, enquiries were made with the brokers but it was found that no incriminating documents were available with them because the enquiries were twenty days after the search at Nova and the brokers anticipated the search of their premises. Strangely enough, the department did not consider it necessary to record any statement from the brokers whose names were found on the reverse of the Delivery Challans. The ld. Senior Advocate emphasized the fact that there is not even an iota of evidence of the goods P a g e | 23 E/11659, 11661-11662,11664,11667/2018-DB having been sold in or around Surat as alleged in the show cause notice and as confirmed by the learned Adjudicating Authority. No transporter or broker has given evidence to this effect. Obviously, the unloading of the goods from the trucks cannot be on a public road. It has to be to some specified person at some premises of his. It is certainly not the case of the department that the goods were unloaded in the brokers premises or sold to the brokers. The entire matrix of the case on which the conclusion of the learned Adjudicating Authority is based, therefore, fails. More so, in cases where a wrong vehicle number was mentioned in the invoices. Since in these cases the learned Adjudicating Authority concludes that the transport could not have carried the goods, but the goods are presumed to have been sold. Any sale could be presumed only in respect of the goods which were actually transported. If the vehicle mentioned in the invoice is wrong and it was not capable of carrying the goods it cannot be concluded that the goods were carried and sold in or around Surat. It is significant that, in the present case, there is no evidence at all of any part of the goods having been sold in or around Surat to any person. No transporter has stated so. As regards the statutory documents (CT-3s, AR-3As, D-3, etc.), the ld. Senior Advocate submitted that the Adjudicating Authority has brushed aside the submission of Nova that importance has to be attached to the role of the Central Excise Officers in these transactions. Everyone of the Inspectors in-charge of the EOUs has been examined and their statements are almost uniform and have been summarized in the impugned order. According to these statements made by them, insofar as imported goods/Raw Materials/consumables are concerned, the respective EOUs would immediately submit an intimation regarding receipt of such imported goods along with copies of Bills of Entries etc. and in all such cases the officer personally visits the factory premises to verify receipt of the consignment and all the details as reflected in the documents with that seen physically and ensured that proper entries were made in the records maintained in this regard by the concerned EOUs. So far as indigenous duty- free goods duty-free goods/consignments are concerned, all the works relating to re- warehousing were based on documents. The EOUs were filing D-3 intimation, along with copies of AR-3As and invoices covering the consignments etc., with the Range. Since the physical supervision of EOUs had been dispensed with in terms of the C.B.E. & C. Circular No. 88/98-Cus., dated 2-12-1998, issued from F. No. 473/9/98-LC, all re- warehousing procedures, other than those in respect of imported duty free consignments, were being monitored on the basis of records/documents maintained both by the EOUs as well as those maintained at the Range level. As and when the EOU were filing the D-3 intimation, the necessary records were called for with regard to in- bonding of such duty free goods, and based on the entries made therein and so far as it relates to other documents so submitted by the EOU to the Range under their signatures/certification, the Central Excise officer was signing the re-warehousing certificates on that basis viz., record/document basis only. At no time were the consignments of indigenous origin physically verified, as per the Board's Circular. Thereafter, re-warehousing certificates were being dispatched, either weekly or fortnightly basis, to the jurisdictional Central Excise Officer of the consignor end. On being shown seized records/files containing copies of AR-3As, in respect of clearances of Polyester Yarn made by Nova, and which have been duly re-warehoused by Central Excise Officers, in respect of the units falling under their charge, they confirmed their signatures appearing on the AR-3As (re-warehousing certificates). Copies of CT-3s, AR- 3As and re-warehousing certificates and D-3 intimation were enclosed with the written submissions of the ld. Senior Advocate, which clearly show that the receipt of the goods is acknowledged by EOU in the D-3 intimation, which is one of the documents relied upon by the Central Excise Officers. For the learned Adjudicating Authority to say that the goods were not received in the EOU when a statutory record prescribed for the purpose acknowledges receipt is, to say the least, very incongruous. The learned Adjudicating Authority relies on the Delivery Challans which according to him should "outweigh" the statutory records to hold that the goods have been unloaded and sold in Surat just because the name of the broker at Surat is shown on the reverse of some Delivery Challans. The ld. Senior Advocate submits that this is a conclusion which defies any plausible explanation. A second important factor in this regard is that the Circular No. 88/98 (supra), itself is one issued by the Land Customs section of the Board and the circular incorporates the salient features in the matter of imported goods and refers to physical control being abolished. The evidence given by the officers in the present case speak of physical control being carried out by them in respect of imported goods. The ld. Senior Advocate submitted that it would appear that the liberalization of bonding procedure by the Circular No. 88/98 (supra) did not cover cases where EOUs were receiving indigenous goods. The ld. Senior Advocate continued his submission and stated that, even assuming without admitting that the circular is applicable, the circular also provides for examination of the records of the units and transactions undertaken by unit at least once in a month. All movements of goods had to be recorded in a proper register. Therefore, even assuming that physical verification has been dispensed with, P a g e | 24 E/11659, 11661-11662,11664,11667/2018-DB responsibility of departmental officers to ensure checking the correctness of raw material, quantity used, finished goods produced etc. and maintenance or proper records is prescribed under the said circular and not dispensed with. Therefore, in the light of the CT-3s, AR-3As, D-3 and re-warehousing certificates having been issued in present case, by the parties, the ld. Senior Advocate submits a mere mention of the broker's name on the backside of Delivery Challans cannot have any significance or impact, particularly when D-3 intimation is a document which acknowledges the receipt of goods by the EOUs and is duly signed by the EOU. It was also the contention of the ld. Senior Advocate that all EOU customers who were interrogated during the investigation have confirmed when their statements were recorded under Section 14 of the Act, that they have received the consignments of yarn from Nova which were warehoused in their premises and were used for further manufacturing purpose. The Adjudicating Authority has rejected these statements only on the ground that EOU customers had given details of the total quantity of yarn received and warehoused by them during the period but no specific information about the consignments received from Nova. This is a total mis- appreciation of evidence on the part of the Adjudicating Authority since the statements were recorded in the context of enquiry against Nova only. The total quantity shown as warehoused by some of the EOUs also included yarn received from Nova which were also duly recorded in the in-bond register as warehoused. Even in the proceedings before the Adjudicating Authority, some of the EOUs who had participated therein had contended that they had received the consignments of yarn from Nova and had duly accounted them in their register. The Adjudicating Authority has rejected this on the ground that the number of some of the vehicles written in the Delivery Challans were vehicles incapable of carrying them as there were no National Permits available for such trucks. It is also important that only 4.65% was involved in such erroneous vehicle numbers. To demand duty on all the yarn sold and delivered to all the EOUs is, therefore, totally arbitrary. For example, in the case of Blue Moon (one of the EOUs), 29 vehicles out of 402 showed discrepancy of vehicle numbers. The evidence of transporters also did not indicate that their vehicles were not used for delivering the yarn at places like Malegaon and Dhulia. In some cases LR books were found in the transporters' office and no LR Book was seized from the premises of Nova during the search. Even in cases where the Adjudicating Authority held that vehicle did not have licences to ply outside Gujarat, no evidence like RTO's permit or RC Book was produced. It is an established practice that temporary permits are granted on payment of requisite RTO fee to transport goods in the neighbouring States. The statement of eight transporters cannot, therefore, be conclusive evidence that they had not used their vehicles for delivery of yarn to EOUs located outside Gujarat. Their evidence could not have, by any stretch of imagination, been used to prove that 13,800 clearances made to EOU customers had not taken place. The eight transporters accounted for less than 60 trips during the two years. It had been pointed out to the Adjudicating Authority during the hearing that even DGCEI had committed errors in writing vehicle numbers. These facts/submissions have not been considered/appreciated by the Adjudicating Authority. It was, therefore, submitted by the ld. Senior Advocate that the confirmation of the present demand in the impugned order is totally devoid of any factual basis and is legally untenable.
On the merits of the present demand, the learned Special Counsel for the Revenue has, as stated earlier, analyzed the evidence in a tabulated form in the written submission filed by him on 30-7-2013. He submitted that, in view of the reasons given in the tabulated form in column 4 under the head "reasons", on the basis of complying with the principle of preponderance of probability and the weight of documentary and circumstantial evidence, it has been correctly held by the respondent that the allegation in respect of the seven EOUs (outside Gujarat) has been proved. He has also emphasized the fact that none of the aforesaid 7 EOUs participated in the adjudication proceedings. The learned Special Counsel has, while summing up his submissions, justified the order passed by the Adjudicating Authority in the present demand since, as per the report of the RTO, a number of vehicles shown to have been used to transport duty free goods under the CT-3 certificates were found to be incapable of carrying the same. It was corroborated by the statements of key persons of some of the EOUs. He further submitted that, in respect of some of the EOUs, enquiries reveal that they did not have enough plant and machinery to manufacture the final product from POY. He also submitted that the dealers of Nova were getting CT-3 certificates issued by the EOUs and giving them to the Surat office of Nova and goods were being sent by Nova without payment of duty against AR-3As. Such goods were off loaded at Surat and sold in the market. He further submitted that enquiries with transporters reveal that they never transported duty free goods to Malegaon and Dhulia (outside Gujarat) but off loaded the same in and around Surat. Some of the trucks did not have the permits to travel beyond Gujarat. He also submitted that on several delivery challans the names of agents of P a g e | 25 E/11659, 11661-11662,11664,11667/2018-DB Surat are mentioned and the representatives of the EOUs admitted that duty free goods were not received by them. [The ld. Senior Advocate rebutted the submission that there was any such admission of non-receipt of goods by the EOUs]. LRs of most of the transporters were kept with Nova and were prepared by the employees of Nova who did not appear in response to the summons issued by the department. Transportation was being arranged by Nova and freight was also being paid by Nova. According to the learned Special Counsel, duty free polyester yarn cleared by Nova to EOUs as deemed exports were diverted into domestic market. On these facts it was contended by the learned Special Counsel that the confirmation of the demand by the Adjudicating Authority deserves to be upheld. The learned Special Counsel also disputed the contention of Nova that wrong numbers on challans could have been the results of clerical mistakes. The two employees of the dispatch section had disappeared from the scene soon after the investigation started and could not be traced there-after. This was a situation which, according to him, was created by the Directors so that the truth never surfaced.
He also contended that the argument of Nova that 1004 consignments (where vehicle numbers were not correct) out of 13800 formed a small percentage of total clearances was not material, and submitted that these 1004 consignments are backed up by the evidences and justified the entire demand. Reliance was placed on the decision of the Tribunal in the Viraj Alloys & Steels (supra). He also cited 3 decisions in the matter of preponderance of probability which, according to him, proved the case in favour of the Revenue in the instant case.
We have considered the submissions of both the parties on the merits of the demand. It is true as pointed out by the ld. Senior Advocate for Nova that the impugned order itself states that re-warehousing certificates for the entire quantity of yarn were received by the Central Excise Officers In-charge of all the EOU customers. These have also been shown as received in the in-bond register of the EOUs and payments have also been made by the EOUs to Nova by cheques/drafts. These have not been disputed by the ld. Special Counsel for the Revenue. CT-3 certificates, AR3As and D-3 declarations are all mandatory prescriptions under the Central Excise Rules in respect of transactions occurring between manufacturers and EOUs. The Adjudicating Authority, while passing the impugned order, has in the light of the statements of Inspectors in- charge of EOUs that physical supervision of receipt of goods by the EOUs had been dispensed with in terms of the C.B.E. & C. Circular 88/98-Cus., dated 2-12-1998 in respect of clearance of goods made by the indigenous manufacturers as against importers, held that all the works relating to re-warehousing were based only on documents, and concluded that what would be relevant and conclusive in the present case would be the Delivery Challans. We have gone through the said Circular. The Circular is, no doubt, intended to liberalise the bonding procedures in respect of 100% EOUs by providing operational flexibility, by easing restrictions and removing practical difficulties being faced by such EOUs. It may be relevant, in this connection, to reproduce the said Circular in full, which is as under :-
Export - Liberalisation of bonding procedure in respect of 100% EOUs The degree of supervision of the departmental officers on movement of raw materials, components, finished goods and manufacturing process and accounting of the same in an EOU has been under the review of the Board for some time. The board has since amended the "Manufacture and Other Operations in Warehouse Regulations, 1966" by Notification No. 44/98-Customs (N.T.), dated 2-7-1998 to provide operational flexibility, ease the restrictions and remove practical difficulties being faced by such EOUs, considering the changes in the environment of import control and tariff regime. The salient features of the changes are as under :
(i) The revised procedures will apply only to the EOUs as mentioned above. It will be observed from the amended regulations that the provisions relating to fixing the days/hours of operation of the warehouse, the manufacture to be carried out under the physical supervision of the customs officers, locking of the warehouse premises, control over the issue and return of imported goods have been deleted. Therefore all movements from and to the units like clearance of raw materials/components to the job workers' premises, return of the goods from the job workers' premises, clearance to other EOUs, export and sale into DTA can be made by the manufacturer himself subject to his recording of each transaction in the records prescribed by the Board/Commissioners or their private records approved by the Commissioners.
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(ii) As physical control is being abolished, greater stress needs to be given on proper maintenance of prescribed records/accounts and non-maintenance of the accounts shall be viewed seriously and should also reflect on the supervisory role of the officers who have been assigned to supervise the said units. Such accounts should be scrutinised once in every month by the officer who have been posted on cost recovery basis or other officers assigned to the unit.
(iii) Movement of non-duty paid goods :
The movement of goods without payment of duty has been allowed from the EOU to another EOU or to STP/EHTP units and for exports. The officer in-charge of the sending EOU and receiving units shall watch such movements as there are reports of misuse of this facility. The re-warehousing certificate on transfer of the goods from one EOU to another shall be obtained by post and shall be cross-checked occasionally with the Superintendent in-charge of the next unit to see whether the goods have been actually received in the unit or not. In case of non-receipt of re-warehousing certificate and similarly proof of export from the proper officer, within 90/180 days, the duty shall be demanded from the sending unit immediately.
(iv) Audit of the unit:
The presently sanctioned Cost Recovery Officers shall examine the records of the units and transactions undertaken by the unit at-least once in a month. The notification provides in regulation 11, that the Chief Commissioner may order special audit of the unit by a Cost Accountant (CA) nominated by him in this regard. Cost Auditor may be employed as a tool to check the correctness of raw material, quantity used, finished goods produced or other such situations. Before such approval, the Chief Commissioner may form a panel of CAs, fix the rate of the charges to be received by the said Cost Accountant. The names of the CAs and the details of the charges may be pre-notified at regular intervals.
(v) It may be seen that while the latitude for manufacture and clearance and movement of raw materials and finished goods have been given to the EOUs, extra responsibility devolves on the cost recovery officers who are presently attached to the said units.
There is no proposal at present for reduction or abolition of the said cost recovery posts. Wherever one officer has been assigned to more than one unit, the said officer would be made responsible for specific monthly checks. However, the units be permitted to operate with as much flexibility as possible. To obtain economy of scale units resort to various cost cutting measures like combining purchase of raw materials with other units, dispatch of goods in the same conveyance with other units or setting up common user facilities. Such arrangements may be allowed subject to proper and easy accounting of the duty free raw material and capital goods used therein. However, it must be insisted upon and ensured that all movements of goods be recorded in a proper register. Where specific difficulty arises, units may be cost audited with the prior permission of the Chief Commissioner.
The Circular provides for examination of the records of the units and transactions undertaken by the Unit at least once in a month. All movements of goods have to be recorded in proper register. Therefore, even assuming physical verification has been dispensed with, the responsibility of departmental officers to ensure checking the correctness of raw material, quantity used, finished goods produced or such other situation, and maintenance of proper records is prescribed under the said Circular and not dispensed with. In our view, it is only the physical verification of the receipt of the goods in the EOU and matters relating thereto, that are dispensed with. The Circular does not absolve the departmental authorities from (on the other hand, it prescribes it) the responsibility for periodic check of the factory as well as the EOUs to ensure that the records maintained for the purpose are proper and true, apparently because the manufacturers and EOUs enter into transactions which involve duty-free clearances under liberalized procedures. It is important to note that the impugned order takes into consideration the fact that, in compliance of the Board Circular, officers were not verifying physical receipt of goods in the EOUs. It would be incongruous to presume that the departmental officers did not carry out, in the present case, the periodic checks which have been prescribed under the latter part of the Board Circular. A Board Circular is binding in its entirety and not in parts. If their duty is to inspect the units on periodic basis to verify the correctness of the records, their failure to do so would amount to a non-compliance with the Circular. The relevancy of statutory records cannot, therefore be minimized by the department itself and predominance be given to contractual P a g e | 27 E/11659, 11661-11662,11664,11667/2018-DB documents like Delivery Challans issued by or between private parties. The reasoning of the Adjudicating Authority, that the Delivery Challan would outweigh the statutory records, is not sound. There is another vital fact, which is important to the present case. The Delivery challans according to the department did not show receipt of the goods in the EOUs. From this it is presumed that the goods were not received in the EOUs. According to the statements made by some transporters they were unloaded in or around Surat. This statement is as vague as it can ever be. There is no evidence that the goods were delivered to the dealer whose name was indicated on the reverse of the Delivery Challan. No transporter has stated this. Neither the dealer nor the person to whom it could have been handed over has signed it. In this connection, it is seen from the show cause notice (Para 13.13.2) that all transactions with EOUs were through dealers. It was explained by Nova's Marketing Manager as under :
"13.13.12 On being asked as to how they process the requirements of manufactured goods received from 100% EOUs, he stated that all their transactions were only routed through their dealers. The dealer submit to them the CT-3 certificates of the concerned EOUs and placed order for the goods manufactured by them. Upon receipt of the CT-3 certificate from the dealers, handed over to them by hand, they transmit the same to their Excise section of the factory, to Shri Nitin Patel. Based on the aforesaid certificates, materials were dispatched from the factory premises. On being asked, he specifically and categorically admitted that all their transactions were made only through the dealers, and they are not directly dealing with any of the EOUs. Further, on being asked, he stated that the re-warehousing certificates in respect of the goods consigned to such EOUs as well as payment in respect of the goods are also submitted to their company by their dealers only by hand, and they do not directly interact with the EOUs in this regard. Once the goods are delivered from the factory, all the movements were taken care of by the dealers. He also informed that in case the buyer turned fake or non-existing, the payment of the goods were recovered from dealers who had placed the orders."
It is not the case of the Department that the procedure was any different. It cannot, therefore, be said that the presence of names of the dealer on the reverse side of the Delivery Challans would mean that the goods were delivered to the dealer in or around Surat. It is clear and an admitted fact as seen from what has been extracted above that all transactions between Nova and EOUs were through dealers and the name of the dealer on the reverse of the Challan was to identify the dealer who was connected to the particular EOU. To conclude that the name of the dealer on the reverse of the challan is only to direct that the goods should be sold in or around Surat in the domestic market by the named dealer is too presumptuous and not backed by any evidence to support it. Secondly, if the intention of Nova was that the goods should be delivered to dealers at Surat, in such a case, at least in some of the Delivery Challans, it would be reasonable to expect that the dealer to whom the goods were delivered would have signed in token of having received the goods, whether it be for onward sale in Surat itself or on behalf of the EOU. We are not in a position to appreciate the inaction on the part of the Investigating Authority to get any clarification in this behalf from dealers, more so after having visited their premises and not found any incriminating materials. They have merely stated that no incriminating materials could be found because the dealers would have anticipated search of their premises since Nova had been searched 20 days earlier. Nothing precluded the authorities from recording the statements of dealers on how the transactions involved in the present case were handled by them, particularly in cases where their names figured on the reverse of the delivery challans. If the department's case is, as has been made out in the show cause notice and as presented before us, that the dealers whose names appeared on the reverse of the delivery challans were to deal with the consignment covered by it and sell it in the local market, and that the goods instead of having been delivered in the EOU were unloaded in or around Surat where the named dealers are, the dealers so named would have clearly be in the know of what happened to the goods whether they were at all received in or around Surat or whether they were in fact received in the EOU itself or whether they were sold off either in Surat or by the EOUs. This lacunae in the investigation is vital and, in our view, totally destructive of the department's case before us, since the impugned order bases itself essentially on the presence of the name of the dealer on the reverse of Delivery Challans and the statements of the transporters that goods were delivered in or around Surat. Even as regards the transportation alleged to have been made in incapable vehicles as reported by the RTO, there was no effort made by the Investigating Authority, to check up from the name of the dealer on the reverse of the delivery challan about the actual factual situation in respect of that consignment. It is relevant to mention in this context that, in his written submissions, the ld. Special Counsel for the Revenue had referred to the representatives of EOU having denied receipt of the goods, which was rebutted by the ld. Senior Advocate for Nova during the P a g e | 28 E/11659, 11661-11662,11664,11667/2018-DB hearing. We had heard some of the EOUs to whom show cause notices were issued and orders had been passed against them by the Adjudicating Authority who had filed appeals before us, which were also heard along with this appeal by Nova. The EOUs which were represented before us had unequivocally stated that they had received the goods and paid for the same. One of them had even produced evidence of the POY having been sent for job work and having exported the finished product thereafter, and the consequent de-bonding of the unit. Another important consideration which has a vital bearing on the justifiability of the present demand is the fact that, even though there had been statements of transporters that the goods were unloaded at Surat, there has not been, any evidence of any such unloading having taken place. Since there is not even an iota of evidence as to where in Surat the goods were unloaded or as to who took delivery of the same (this should have been known to the transporter) and to whom the goods had been sold, the present demand has no factual basis to sustain itself. The demand itself is been made in respect of 43,53,933.42 kgs as pointed out by Nova in their reply to show cause notice, and covers the period (FY-2001-02 & 2002-03). No evidence of any sort (not even a single instance) showing actual sale of goods in the domestic market has come on record. The textile industry being one of the predominant industries in Surat, it is difficult for us to conceive that clandestine activities of sales of such large magnitude could have taken place without coming to the notice of the Central Excise authorities. This is not a case where goods sent to an EOU were found being sold in the domestic market. There is no evidence of any sale and there has been no identification of even a single buyer.
There being a conspicuous absence of evidence of actual diversion of the goods into the domestic market, transactions in such goods by named persons, and flow-back of funds, a demand as in the present case cannot be sustained on the basis of mere statements made by transporters of goods and that too, not of the drivers who transported the goods but of the owners of such company, who were not involved in the physical transport of the goods. To say the least, the impugned order is solely based on the statements which have no precise content.
We have also noticed the contention raised by the department that some of the units did not have machineries like texturising/twisting machines fit enough to fulfil their export obligation. The impugned order takes note of this allegation in the show cause notice and confirmation of demand in some of the EOUs is sought to be justified on this ground. On going through the facts of the case we find that, in the statements made by Inspectors of Central Excise, while dealing with the question of physical verification of receipt of goods in the EOU, they have stated, on being asked as to whether they had visited the EOUs that were under their charge at any time, that, initially when the jurisdictional Division Office had sent the application for registration filed by the EOUs to the Range for verification purposes, the Inspectors accompanied by their Superintendents visited the site of the factory premises of the EOU for verification of the facts stated in the applications. It defies logic or reason for us to believe that they had verified the application for registration as an EOU, but failed to notice that they had no machinery to manufacture the export goods. It is not the case made out in the show cause notice that all the EOUs involved in the present case were getting job-work done by others. This would again show that the Adjudicating Authority has failed to apply his mind to all the facts, before arriving at his conclusions, and has confirmed the demand only on conjectures and surmises, without any concrete evidence on any of the aspects referred to by us above. In dealing with cases like the present involving allegations of clandestine sales in the domestic market by the EOUs or even by manufacturers under the guise of sending the goods to EOUs, one has to keep in mind the need for clinching evidence of violation of the provisions of the Act and the Rules made thereunder. A conclusion cannot be arrived at on the basis of inferences which are, in turn, based on statements which are not supported by actual facts in existence or found. As far as the present demand is concerned, the allegations against Nova are based on some vehicles mentioned in the invoice being not capable of being used, the goods mentioned in the invoices not having been received by the EOUs, and the incapacity of some of the EOUs for utilizing the goods. From our discussion above, it would be clear that none of these grounds is substantiated by concrete or credible evidence. Mere reliance on the statements not corroborated by tangible evidence cannot be the basis for confirmation of a demand of high demand as in the present case. On the basis of the aforesaid findings, we are constrained to set aside the demand of Rs. 9,77,62,573/-.
43. The learned Senior Advocate has also in his written submission raised the ground of limitation against the 4 demands in the present case, and that the show cause notice dated 30-6-2006 was time-barred since the extended period of limitation could not apply P a g e | 29 E/11659, 11661-11662,11664,11667/2018-DB in the facts of the present case. He had submitted that Nova had maintained all the statutory records wherein raw materials and inputs as well as finished products have been duly entered and final product, namely, POY has always been cleared on payment of duty under Central Excise Invoices as shown in the documents like RG-1, PLA and monthly returns which have all been examined and assessed by the Central Excise authorities. No specific finding has been recorded in the impugned order holding as to how the extended period of limitation was available to the Revenue under the provisions of the proviso to Section 11A of the Act, which can be invoked only where suppression of facts, or wilful misstatement, or collusion, or contravention of the provisions of the Act or the Rules with intent to evade payment of duty is proved on the part of the assessee. It is not the case of the department that Nova had colluded with the authorities and clandestinely cleared the goods. There is no finding in the impugned order as to which of the elements comprised in the Section 11A of the Act was applicable to the assessee. The learned Senior Advocate had also referred to the case law on the subject which had been filed by Nova in the appeal which is being heard by us. He has further submitted that all the 4 demands in the present case are based on assumptions and presumptions and not based on any acceptable evidence. The learned Special Counsel for the Revenue only reiterated the discussion and the finding in the impugned order to support the same.
Since we are clearly of the view that all the four demands have to be set aside on merits for reasons contained hereinabove, and dealt with seriatim in this order, it would not be necessary for us to dwell into the issue and decide the same. We are also not dealing with the submission made by the learned Senior Advocate for Nova as in the matter of applicability of cum-duty price formula for determination of the value of the goods, and recovery of interest under Section 11AB of the Act for the same reason. In view of our conclusion that all the four demands are set aside, the question of imposition of penalties on Nova and its directors cannot arise and are, therefore, set aside.
44. Taking up the cases of the EOUs who have filed appeals before us and have been heard during the course of the hearing of Nova's appeal, we find that they figure only in the fourth demand made against Nova, which we have dealt with in detail while setting aside the same. The EOUs who are in appeal before us have submitted that they had received the goods from Nova and due intimation in this regard had been given to the Officer In-charge of each unit. Moreover, some of the EOUs have also produced Export Obligation Discharge Certificates in support of their submissions. We have referred to these facts while dealing with the demand against Nova, which we have set aside. The Adjudicating Authority, in the impugned order, has imposed penalties on the said units. Imposition of penalty on these units has been justified by the Adjudicating Authority on the basis that there has been collusion between Nova and EOUs. Since we have allowed Nova's appeal and set aside the demand for duty, imposition of penalty on these units on the ground of collusion with Nova cannot arise. There appeals are allowed and the penalties set aside. We do not, therefore, have to deal with the other submissions made by the EOUs appearing before us.
In the case of T.G.L Poshak Corporation (Supra) this tribunal on the identical issue passed the following order :-
6. We have carefully considered the submission and perused the impugned order.
Insofar as the assessee's appeal is concerned, we notice from the extracted portion of the Commissioner's order that Revenue is solely relying on the exercise note books mainly balance steets. The Tribunal in large number of cases which have already been noted above in the tabulated list of citations furnished by the Counsel has held that unless there is clinching evidence on the nature of purchase of raw materials, use of electricity, sale, clandestine removals, the mode and flow back of funds, demands cannot be confirmed solely on the basis of note books maintained by some workers. The facts in the case of Aswin Vanaspati Industries would be identical to the facts herein as in that case also the allegation was with regard to removal of Vanaspati based on the inputs maintained. The Tribunal went in great detail and have clearly laid down that unless department produces evidence, which should be clinching, in the nature of purchase of inputs and sale of the final product demands cannot be confirmed based on some note books. A similar view was expressed by the Tribunal in the other judgments P a g e | 30 E/11659, 11661-11662,11664,11667/2018-DB noted supra. The citations placed would directly apply to the facts of this case. Hence, following the ratio of the cited judgments, the assessee's appeal is allowed.
7. Insofar as the Revenue's grievance on the Commissioner's dropping the proceedings is concerned, we notice from the extracted portion of the Commissioner's order that Commissioner has duly considered the note books relied upon by the department that they are not in the nature of purchase and removal of goods which was only certain balance sheets and certain private registers which does not prove the case of the department with regard to purchase of raw material, manufacture of final goods and clandestine removals. There is no seizure of goods or statements from the purchaser of goods who have paid money and the amounts received by them, appellants have also not recovered, nor there is any proof that amount said to have been received has flown back. Therefore, the dropping of proceedings, is proper and legal, we do not find any merit in the revenue appeal and same is rejected.
4.5 In view of the above decisions, it is clear that the present case having no evidence, the order holding that the goods have been clandestinely removed has no basis and hence, the demand is not sustainable.
5. Accordingly, the impugned order is set aside. Appeals are allowed with consequential relief.
(Order pronounced in the open Court on 06.08.2024) (RAMESH NAIR) MEMBER ( JUDICIAL ) (C. L. MAHAR) MEMBER ( TECHNICAL ) Dharmi